Summary Of ANZ Evidence

18th Aug 2003

Low Cost Carriers (LCCs) are a global phenomenon.Ê Many are names well known to New Zealanders.Ê For example, easyJet, Virgin Blue, Southwest Airlines, Ryanair and WestJet.

LCCs have successfully entered markets the size of New Zealand before and have displayed strong growth.

Control of domestic terminals by full-service airlines, such as Air New Zealand and Qantas, is a thing of the past.Ê Both airlines are willing to provide access and facilities to assist the speed of entry of an LCC in New Zealand.

It is inevitable that an LCC will enter the Trans-Tasman on more than one route - and the New Zealand domestic market - regardless of whether the Commerce Commission authorizes the application for the alliance or not.Ê The undertakings offered by Qantas and Air New Zealand could speed up the arrival of an LCC.

The assumption that without the alliance markets would be perfectly competitive is unrealistic.


LCCs have permanently undermined the price discrimination practices of Full Service Airlines (FSAs) and have had the largest impact on price competition in airline markets in the past 25 years - much larger than any competition between FSAs.

The LCCs pricing practices have resulted in major fare reductions on FSAs, even benefiting business travellers.

LCCs are gaining an increasing amount of business, both through market stimulation and taking travellers away from FSAs.

FSAs have been able to reduce costs but not to the level of LCCs. AND Virgin Blue’s expansion outside Australia is virtually inevitable.Ê It serves 24 of Australia’s top 30 markets, has 40 aircraft on order plus 10 options and the Tasman is within the range of its fleet.Ê

Authorisation of the Alliance with Qantas is absolutely critical to the future of Air New Zealand, and because the fortunes of New Zealand`s tourism industry are so inextricably tied to the fortunes of Air New Zealand, also critical to the future well being of New Zealand.
Along with other full service airlines (FSAs) internationally, Air New Zealand is operating in a changing global aviation industry. This change has been brought about by a wave of cross border liberalisations of aviation bilaterals which have permitted domestic and trans-border markets to be entered by a new efficient and effective airline model (presently limited to short haul routes) known as Value Based Airlines (VBAs) or Low Cost Carriers (LCCs).Ê VBA and LCC are abbreviations used interchangeably throughout the airline industry to describe the same business model.
Air New Zealand`s international operations comprise approximately 75% of its total flying operations while its domestic operations comprise 25%.Ê Internationally, the airline flies to the United States (Los Angeles/Honolulu), London, Australia and to a number of Asian destinations including Japan (Tokyo/Osaka/Nagoya), Singapore, Taiwan and Hong Kong.Ê It also provides international services to the Pacific Islands and beyond to Los Angeles.
Air New Zealand has a short window of opportunity to solve the threat to its medium to long term survival.Ê The only way it can do this is to be the remaining FSA in New Zealand, an outcome which it can achieve only through the platform of the Alliance.Ê The Alliance provides a one-off opportunity to combine two strongly branded locally based airlines into a sustainable regional group.
From a national perspective, the Alliance provides substantial supportable net benefits to the New Zealand economy:

-ÊIt provides the means to maintain a New Zealand owned and controlled flag carrier having all the necessary incentives, capability and willingness to encourage tourism growth for New Zealand.

-ÊIt allows the parties to avoid the costs of a slow, degrading and costly battle for market share in which Qantas commits additional capacity and Air New Zealand attempts to respond, but with limited resources.

-ÊIt allows for improved scheduling, including more direct flights.
-ÊIt will lead to increased tourism in New Zealand.Ê Without a doubt, Air New Zealand is the greatest source of tourism promotion that New Zealand has.Ê Compared with other airlines, or indeed even with the Government, Air New Zealand is the major source of promotional funding for New Zealand.Ê

-ÊIt enables Air New Zealand Holidays to cheaply access Qantas Holidays` intellectual property and its vast network.Ê

-ÊIt provides a basis for Air New Zealand`s first class engineering services to secure greater portions of Qantas` engineering and maintenance requirements, and additionally creates leverage in servicing other 3rd parties.Ê

-ÊIt provides increased freight opportunities for New Zealand`s export industry at a time when otherwise the new A320 aircraft will reduce available freight space.Ê

The Alliance has numerous other benefits:

-ÊIt can cease what is commonly known as wing tip flying, where both airlines compete on flights departing at exactly the same time.Ê As a result passengers will have a far greater spread of flights throughout the day, both domestically and internationally.Ê

-ÊAir New Zealand and Qantas will be able to achieve greater efficiencies by using a larger aircraft rather than two smaller aircraft on some routes.Ê

-ÊAir New Zealand and Qantas can combine our available passengers and services to create new growth strategies by commencing new direct on-line flights to some new destinations, which are currently only served indirectly, e.g. Auckland/Adelaide or Auckland/Paris or Auckland/New York.

-ÊAir New Zealand and Qantas can avoid both buying expensive aircraft to service new routes or both buying replacement aircraft where one acquisition will achieve a more efficient outcome.

- ÊAir New Zealand can choose the most efficient operation on particular routes to ensure that inefficiency is removed from the operations.

* It is now beyond doubt that Virgin Blue intends to expand onto the Tasman and the domestic New Zealand routes to compete as a VBA.

* ÊOn August 14, Air New Zealand made a fresh offer to Virgin Blue in relation to access to domestic counters at Auckland Airport.Ê A variation of the conditions previously provided to the Commission, revised to specify the terms of the offer of Auckland domestic counters to Virgin Blue, is now offered to the Commission.

* The Alliance provides a platform to create a viable future for Air New Zealand.Ê This is an opportunity that is unlikely to be available to Air New Zealand in the future.Ê If the applications for authorisation are declined, the risks to Air New Zealand`s survival as a full service airline with an international network are grave.Ê



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